A Tale of Two Iraq Investigations

While investigators zero in on what happened to billions of dollars allegedly siphoned away in the Oil-for-Food scandal, a less high-profile probe is under way into spending in Iraq.

Investigations into how the U.S-led coalition spent Iraq’s oil revenues after the fall of Baghdad in 2003 have found several problems. Last month, the International Advisory and Monitoring Board (search) (IAMB) on Iraq reported serious problems with the way a $20 billion fund for Iraqi rebuilding had been handled.

Some look at the heavy focus on Oil-for-Food — the U.N. program that was supposed to have let Saddam Hussein (search) sell oil to buy humanitarian goods for Iraqis but instead was used to help line the pockets of Saddam and others — and the comparatively light touch given to reports of other fraud as being unfair.

“We cannot take the moral high ground,” insists Pratap Chatterjee, author of Iraq Inc., and a war critic who has made several trips into the region. “We took the money, we spent it any way we wanted. We kept no track of the money. How are we able to judge what went on before?”

But others say there is no comparison between how American officials spent U.S. taxpayer funds or Iraqi money in postwar Iraq and how private companies and individuals — including U.N Secretary Kofi Annan’s son — allegedly profited illegally from the multibillion-dollar program during the 1990s.

Michael Rubin, an American Enterprise Institute scholar and a former political advisor to the now-defunct Coalition Provisional Authority (CPA), said the recent IAMB report might be an attempt to draw attention from Oil-for-Food.

“This reminds me of [how] a petty thief, after being arrested, is put in a cell and tells all sorts of tales to get a lighter sentence,” he charged.

Soon after Saddam was toppled in April 2003, the CPA was established as a temporary authority until the interim Iraqi government took over in June 2004. Under the CPA, the Development Fund for Iraq (DFI) was created, in part to handle and disburse Iraq oil revenues, frozen and vested assets, and leftover funds from the Oil-for-Food program.

The IAMB — a group created by a coalition of international organizations, including the United Nations — concluded that the CPA mishandled Iraqi oil revenues from May 2003 to June 2004.

Among the results of its December report:

— More than $812 million in non-competitive bid contracts handled by Kellogg Brown & Root (search), a subsidiary of Halliburton Co., included “overstated” and “unsupported” costs.

— Inadequate payroll systems and poor accounting of DFI payments to various Iraqi ministries and to contractors as well as a lack of oil metering made it difficult to determine how much oil was being extracted for sale.

— An unknown quantity of petroleum was smuggled out of Iraq in the first months following the coalition invasion of Iraq.

Read the full IAMB report by clicking here (pdf).

The IAMB is not the only group to raise questions about U.S. dollars being spent in Iraq.

According to July reports by CPA Inspector General Stuart Bowen, the Development Fund for Iraq paid out more than $1.5 billion in reconstruction contracts worth more than $5 million. (Even though CPA no longer exists, Bowen continues to serve as the inspector general for U.S-led Iraq reconstruction projects.)

Review all of the CPA's audit reports by clicking here.

Of that, more than $981 million of that money was given to Kellogg Brown & Root in no-bid deals, although some published reports indicate the company has received at least $1.4 billion in DFI contracts total.

Bowen’s report also said that millions of dollars in cash and assets had not been properly managed or secured during the May 2003 to June 2004 period, mirroring many of the same complaints by the IAMB.

U.S government and Halliburton officials downplayed the latest IAMB report. Officials pointed out that the Pentagon’s audits, which had been given to the IAMB for the report, had already been publicized in October.

“This IAMB report on the DFI is old, based on audits posted publicly and reported on more than a month ago or more,” said a Pentagon spokesperson. “The DFI has in the past, and will continue to be used in a transparent manner to meet the humanitarian needs of the Iraqi people.”

But the IAMB isn’t the only one investigating the handling of Iraqi assets. According to accounting firm KPMG, the external auditor for the IAMB, projects paid for by DFI funds are also being investigated by the Justice Department and other U.S agencies.

Plus, the U.S government has agreed to a special audit conducted under IAMB guidelines to cover the rest of the no-bid contracts that had not been reviewed in the December report. The new audit is due in the next few months, said an IAMB spokesman

Critics point out that KBR has received nearly $10 billion for work throughout Iraq and the region, and is the target of several U.S. government investigations into charges of mismanagement and fraud.

The Defense and Justice departments are conducting probes into complaints that the subsidiary overcharged the U.S military more than $61 million to bring fuel into Iraq and inflated much of the $4 billion it charged for feeding and housing troops and contractors in the Middle East.

But Wendy Hall, a spokeswoman for Halliburton, said in a statement that “the numerous government audits related to our work in Iraq” is “all part of the normal contracting process,” and that the latest IAMB report contains “no new information.”

She also said that the company is addressing the claims in the IAMB report with the Army directly.

In November, Bowen revived calls by Army officials to hold back nearly $90 million in payments — 15 percent of the total bill owed to far — to Halliburton until all of the accounting inquiries are rectified.

“To be fair to Halliburton -- and I try to be as objective as possible -- anyone who has been to Iraq will know that the situation is completely chaotic,” said Chatterjee. “But could they have avoided fraud and corruption, could they have hired people who would have done a good job? They could have and they didn’t.”

In October, Rep. Henry Waxman, D-Calif., said the House Government Reform Committee, of which he is the ranking member, should be investigating the handling of the post-Saddam oil revenues. Waxman made his comment during a hearing into the Oil-for-Food program.

“If we are going to examine how Iraq’s oil money has been spent- - which I believe we should -- we need to proceed in a fair and transparent way,” he told the committee. “And if we refuse to ask tough questions about the conduct of our own government officials, our efforts will have little credibility in the eyes of the world.”

A spokeswoman for Waxman said she knew of no hearings scheduled on the issue, so far, in the newly adjourned Congressional session.

A spokeswoman for Sen. Norm Coleman, R-Minn., who is leading a Congressional probe into Oil-for-Food, said her boss could not comment on the IAMB report, but added that his own inquiry only encompassed the Oil-for-Food program.

At least five Oil-for-Food investigations are under way in Congress.

“With the U.N. [Oil for Food] you have two problems — outright bribery and money getting diverted,” said Rubin. “What you have going on today in Iraq is minor in comparison.”

Rubin, the American Enterprise Institute expert, called any comparison between Oil-for-Food and the Development Fund for Iraq “hogwash.”

While he acknowledged that Washington bureaucratic standards may have been tossed in wartime and former CPA administrator Paul Bremer may have been sloppy, Rubin said, “Do I think money was embezzled? No way.”

“The type of corruption that did exist was less about embezzling this money than it was about a few dishonest people,” he said. “Not in KBR — they became the whipping boy.”

Chatterjee doesn’t write it off that easily.

“I was pretty astonished to discover that they had spent the Iraqis’ money and pretty much kept no receipts,” he said. “I still don’t think there was a conspiracy to steal it, but effectively, at the end of the day, it was at the very least mismanagement and at worst, certainly fraud.”